Oil prices dropped in Asian trading early on Wednesday before bouncing back slightly as market participants continue to weigh tightening supply and China’s fresh stimulus pledge against concerns of slowing developed economies amid rate hikes.
In Asian trade on Wednesday, the U.S. benchmark WTI Crude was down by 0.13% to $75.65. The international benchmark, Brent Crude, recovered its early losses and was up 0.05% to $79.68.
Concerns about the U.S. and European economies, coupled with the lower-than-expected Chinese growth in the second quarter, continue to put downward pressure on prices, although the American Petroleum Institute (API) estimated late on Tuesday a small draw of 797,000 barrels to U.S. crude oil inventories. U.S. gasoline inventories are also estimated to have fallen last week, per API data. If confirmed by the official EIA inventory report later on Wednesday, draws could support oil prices in the latter part of this week.
The market, however, appears to be continuously concerned about the U.S. and European economies. The Fed is widely expected to raise the key interest rate by a quarter percentage point, with odds on Wall Street at 93.6% for a rate hike at the July 26 meeting.
“A retail sales report confirmed the US economy is still healthy and ready for another quarter-point rate rise by the Fed,” Ed Moya, senior market analyst at OANDA, said on Tuesday. Still, “Wall Street grows confident Fed will be ‘One and Done’ on rate hikes,” Moya notes.
Limiting the slide in oil prices early on Wednesday was the Chinese pledge from Tuesday that it would “formulate and introduce more effective policies for restoring and expanding consumption as soon as possible.”
On the fundamentals front, Russian crude oil exports are now showing signs of decline for a second consecutive week and are estimated to have sunk to a six-month low in the four weeks to July 16.
“With Russian flows falling to a six-month low, expectations are growing that OPEC+ will keep this market tight throughout the summer,” OANDA’s Moya commented.
“Brent crude looks like it wants to find a home above the $80 level and that shouldn’t be too hard as long as the crude demand outlook doesn’t get blindsided,” the analyst noted.
By Tsvetana Paraskova for Oilprice.com
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